How to Negotiate a Debt Settlement

It can be a straight-forward process to negotiate a debt settlement:

  1. Decide whether you want to negotiate the total amount owed, the monthly repayments, or the account status.
  2. Work out how much you can afford to repay.
  3. Send the lender a debt settlement letter stating what you can afford.
  4. The lender will reply with their terms. Agree if you are happy with them, or send them a counter offer.
  5. If the terms suit you, ask for them in writing.

When you’re overwhelmed by debt, it can feel impossible to meet even minimum payments. But whether you owe one lump sum to a creditor or several debts to different creditors, you can negotiate to reduce payments and even the final amount owed.

In this guide, we’ll help you understand how to negotiate a debt settlement in various formats, so you can establish an achievable payment plan that works for you.

If you’re looking for personalised advice, our debt settlement solicitors can take a look at your circumstances and work to help you become debt free. 

What is debt negotiation?

Debt negotiation lets you talk to your creditors and lenders to arrange new repayments that suit your current finances better. This is useful when you can’t keep the original terms you agreed when you started a loan or line of credit.

Just remember creditors, the people you owe money to, will check your money situation as part of this negotiation, and so debt negotiation can only happen when you truly can’t afford the original repayments.

There are three main areas you’ll need to negotiate when you can’t afford to repay:

  • the total amount
  • the monthly repayments
  • the account status.

Prepare beforehand

Before you start, assess your financial situation to see exactly what you can afford. It can be helpful to write everything down so you know you’ve not missed anything. A budgeting form can be handy for this.

In terms of working out your monthly finances, you need to include essentials such as food, high-priority debts such as a mortgage, and anything else you need to live day to day. Don’t include any non-essential items and bills, such as satellite TV, as you will need to stop payments for these.

Once you have this information, work out how much money you have left each month to pay towards your debts. Even if it’s only a few pounds, make a note of it as any payment you can make is better than none.

To be completely prepared, you should gather copies of your wage slips or benefits details, your rent or mortgage bills, gas and electric bills.

If you’re unemployed, any evidence that supports a reason why you can’t work, such as medical documents would be useful.

All this documentation will help you to prove exactly how much you can afford to repay on your debts.

How to negotiate the total amount owed

Negotiating the final sum of money you owe a creditor can be one of the biggest reliefs. But, it can also be a tricky negotiation, as the lender will typically have to agree to write off some of your debt.

Take a look at the amount and figure out how much you can afford to repay.

For instance, on a £10,000 debt, you may be able to realistically repay £5,000.

Approach the lender using a debt settlement letter stating the amount you can repay, whether it’s a lump sum repayment or in instalments, and explain why.

Chances are they won’t accept the first offer you propose, so consider asking for better terms than you expect. You can then return with a counter offer.

The entire negotiation process may take a while, but stay persistent and provide enough evidence that you’re unable to repay the full amount.

How to negotiate the monthly repayments

Rather than attempting to reduce the entire repayment amount, consider negotiating the amount you repay every month.

For instance, if you can’t afford to repay £200 per month, try and negotiate a lower amount such as £100.

You can negotiate to reduce the overall amount you owe, or to pay off the full amount over a longer period of time by making more by smaller payments.

If you can afford to do the latter, you may find that creditors and lenders are more willing to comply with your requests.

Be sure to get the new agreement in writing.

How to negotiate the account status

Your account status is the factor that could damage your credit score, which has a massive impact on your future.

Everything from phone contracts to mortgages can rely on having a neutral to excellent credit score, so negotiating this part is essential, though difficult.

You’ll only be able to negotiate your account status alongside the other negotiations. A creditor is unlikely to mark the account as ‘paid in full’ if you don’t repay some of the debt. So it’s important to use this negotiation alongside your other arrangements.

Every time you speak to someone about negotiating your new debt settlement, you need to say that you expect the account to be marked as ‘paid in full’ for the benefit of credit agencies. If they won’t agree to that, request it to be marked as ‘settled’.

When you have a new debt settlement sorted, be certain to request the account status agreement in writing, alongside the new repayment terms. That way, if they don’t follow through with marking the account as you asked, you have evidence that any negative marks against your credit score are not true.

Need further legal advice on debt settlement?

Our guide, How to write a debt settlement letter, will give you step-by-step advice on how to sort out a negotiation letter.

If you’re past the point of debt negotiation, you might find it useful to read up about How to file for personal bankruptcy.

For a free, no-obligation phone call to discuss your situation, just get in touch with our legal advisors. 


Note: First4Lawyers offers this information as guidance, not advice. Before taking any action, you should seek professional assistance tailored to your personal circumstances.

Get in touch today to discuss your requirements 08005677866

It seems you are using an outdated browser.

This will impair your browsing experience around the web. Please visit one of the links below to update to a modern browser then re-open the site with the new browser.

Thank you


Can't find what you are looking for?

We are open as normal during the Coronavirus lockdown and are able to help with all your legal needs.

Call us free of charge

0800 567 7866

Request a Callback

Continue browsing